More people dipping into retirement funds early

The Charlotte Observer ran an article yesterday about the growing trend of people dipping into their retirement savings to pay bills and meet their daily needs. The article reports that more than 25 percent of workers who have 401(k) retirement plans are using these funds for their current expenses– mortgages, credit card bills, utilities, etc. Since 2008, the number of workers who withdrew from their retirement accounts early or took loans against them has increased y 12 percent. With many still struggling with the effects of the economic recession, and unemployment remaining high, it is not surprising that retirement savings are being slowly eroded:

But millions of Americans, caught between flat wages and high expenses for everything from sending children to college to making home repairs, feel as though they have little choice. The withdrawals have grown substantially in the wake of the financial crisis. In 2010, 28 percent of participants reported having outstanding loans against their retirement accounts, an all-time high, according to a survey of 110 large employers by Aon Hewitt, a human resources consultancy. And nearly 7 percent of employees took hardship withdrawals that year, roughly a 40 percent increase since the recession, while 42 percent of workers cashed out their plans rather than rolling them over when they changed jobs.

Not only are people continuing to struggle today, but more and more will be unprepared to meet their needs and expenses when they reach retirement age. As people withdraw from their accounts early, those savings and earnings are lost, as is the potential for earnings over the life of these investments. These individuals and families are therefore putting themselves at risk for facing poverty in their senior years.

Already, fewer American workers have access to employer-sponsored retirement benefits today than they did in previous years. As of March 2012, according to the Bureau of Labor Statistics, two-thirds of private sector workers had access to some kind of retirement plan. But within industries and among workers of different wages and firms of different sizes, the access rate and participation rate varied. Part-time, low-income workers, and workers in small establishments had the lowest rates of access to retirement plans and participation in them. Among the lowest 25 percent of wage earners, the access rate was only 38 percent, and the participation rate was only 17 percent. By contrast, the highest 25 percent of wage earners had an access rate of 85 percent and a participation rate of 75 percent.

Boston College’s Center for Retirement Research finds that 53 percent of households are “at risk” of not having enough money during their retirement to maintain their living standards. The Pew Research Center reports that fewer Americans are confident about their prospects during retirement. When asked whether they are confident that “they will enough income and assets to last throughout retirement years,” only 60 percent of survey respondents said they were very/somewhat confident in 2012– compared to 71 percent in 2009. And, as stated in a New York Times article last summer, “Almost half of middle-class workers, 49 percent, will be poor or near poor in retirement, living on a food budget of about $5 a day.”

All of these data just point to the troubling fact that fewer Americans will have enough financial security to pay for their expenses and maintain a good quality of life in their elder years. As we deal with the problems faced by our workers, families, and communities today, it is important that we also keep a focus on how we all will fare in the future. The era in which workers were able to steadily build their pensions over time and live a comfortable retirement is gone, and for many workers even 401(k) plans are out of reach. But economic opportunity belongs to everyone– it is imperative that all workers have the chance to build up their assets and wealth not only for today, but for their futures.